Whether it is P&G’s recent announcement to cut $200M from their marketing spend, Nestlé’s decision to take a “timeout” from trying to boost organic sales, or Unilever’s notice that it will divest its margarine and spreads business, executive-level decision making for Consumer Goods leaders must consider expense, efficiency and profitability in the mature static CPG sector. Of course, these high-level considerations include other factors such as customer experience, sustainability and internal effect. However today’s executive is often put in the position to make decisions that will have significant impact for its employees, its investors, and its customers to add to the bottom line without a complete understanding of how a strategic decision will turn into a tangible and quantifiable action.
This is best seen in the push toward digitalization as a means to cut costs, gain efficiencies, and improve results. However, “A recent McKinsey survey of senior CPG leaders found that most consider digital technologies to be a priority, but few have defined a clear strategic vision linked to actions,” according to the post “CPG manufacturers need a comprehensive strategy for digitization” by McKinsey partners, associate partners and solution managers, Luis Benavides, Marnix Hollander, Frédéric Lefort, and Julian Salguero.
Today’s executive is often put in the position to make decisions that will have significant impact for its employees,
its investors, and its customers to add to the bottom line without a complete understanding
of how a strategic decision will turn into a tangible and quantifiable action.
The McKinsey authors identify 2 typical obstacles inhibiting companies from gaining the most from their digital initiatives:
1) Stuck looking for the next big thing
According the post, “Companies believe they have already captured the full value from lean management and are struggling to find the next pipeline of initiatives that will deliver the typically expected 3 percent annual productivity improvement.”
As a result, companies focus on identifying the next organization-wide systematic improvement that will yield significant return ignoring the potential of improving the efficiency and performance of individual areas of significant investment. Take for example, trade promotion where companies typically find this investment sitting at or near the #2 line item on their P&L. Most executives would agree that even a 1% increase in the return on trade investment would make a significant impact on the bottom line. While true, many companies are hesitant to adopt new digital analytics-driven technologies, such as a Trade Promotion Optimization solution, to improve the return on their investment due to internal fears about data management, resource allocation, and user adoption.
Leading to obstacle #2
2) Not using what you already have
The “fears” mentioned above are realistic concerns for CPG companies. As the McKinsey articles states, “companies’ current practices and systems are not capable of drawing actionable insights from the vast amounts of data available. A recent, and representative, analysis found that a manufacturer failed to use up to 75 percent of the data it had captured.”
And this is where the information gap between C-Level executives and department directors becomes insurmountable. Executives rely on their management team to provide them with the best information to make decisions. Directors and managers are collecting the intelligence, but are unable to make sense of it in timely, accurate and meaningful ways. Again, looking to trade promotions as an area of large investment and large inefficiencies, most companies are still managing trade promotions on spreadsheets making data compilation and analysis time consuming and error-prone. Furthermore, the lack of data harmonization means quantifying ROI is impossible. Due to the inability to organize data in a useable way to gain measurable insights, this information is not being used to make future decisions or as part of a more sophisticated analytics-driven predictive planning tool. Taking the digital approach to trade investment with the integration of a Trade Promotion Optimization solution, automates data compilation and harmonization allowing for real-time comprehensive post-event analysis and quantified ROI and KPIs. Furthermore, combining the historical analysis with predictive modeling provides an event and calendar planning engine to calculate future KPIs maximizing returns that align with organizational objectives, all within budgetary constraints.
Due to the inability to organize data in a useable way to gain measurable insights,
this information is not being used to make future decisions or as part of a more sophisticated
analytics-driven predictive planning tool.
McKinsey defines a 4-part approach to maximizing your digital investment including:
- using digital solutions to enhance performance and build capabilities
- applying advanced analytics to generate new insights
- implementing breakthrough technologies to fundamentally change the game
- mastering the right enablers throughout the organization to promote a sustained digital journey
This philosophy goes back to the necessity to bridge the gap between initiative and results and addresses the key obstacles identified previously.
Even with the McKinsey model, organizations assume risk when tying technology initiatives to bottom-line improvements. This is why this risk must be shared from the beginning of the conversation with your solution provider to lessen the unknown. This can be addressed in several ways.
1) Proof of concept – Can your solution provider give a true preview of where you can go together? Participating in a proof-of-concept that uses your data to glean real insights about your company will allow you to assess both the experience working collaboratively with your solution provider and see tangible results of the project that you can share with key stakeholders and extrapolate across the entire scope of the project to estimate its value.
2) Challenge Customization – While every company is unique is some way, most solutions are created to address common issues. With this in mind, it is important to see what is possible with an “out-of-the-box” solution before delving into costly customizations that often come with lengthy timelines. Remember, the point of the adopting this initiative is to get results that matter in a timeframe that makes a difference.
3) Look to the future – While you should be looking for immediate value and efficiency, you will also want to know that the solution can grow and evolve as your business does. What is the enhancement history of your solution provider? What is not a part of the solution today, but you would like to see it someday? How often is the product enhanced and what drives these enhancements? The answers to these questions should signal the opening of a lasting partnership.
4) References – No one is going to give you the name of a bad reference, but that doesn’t mean you shouldn’t check. Much more than just the quality of the product can be assessed through a good reference. Someone using the solution you are considering can tell you about past enhancements, project management, best practices, training, implementation, integration with other systems, support, etc. Moreover, these conversations encourage solution providers to be transparent and consistent with their claims as they will be challenged as part of the reference process.
With the many Consumer Goods companies coming to the podium to announce lower than expected quarterly earnings and the retail landscape extremely volatile, the pressure for executives to lead in a way that shows strategic commitment toward immediate and sustainable growth is great. As a result, it is crucial that companies look to minimize the disconnect between information holder and decision maker with initiatives that improve business intelligence, increase organizational efficiency, reduce costs and empower actions that directly impact the bottom line. Digitizing current practices can be a catalyst to these results, but comes only with the combination of clearly articulated objectives and the technology solution that you have tested, not just trusted, to get you there.